Cohen Sees Bond Errors

Residents of East Hampton Village and the portion of Sag Harbor in East Hampton Town have apparently been getting off easy when it comes to paying their share of the costs for the Montauk Playhouse and other town projects that were financed by bonds in 2005, 2006, and 2008.

The issue was brought to the town board’s attention last Thursday by Zachary Cohen, a former member of the town’s financial advisory committee who came within a whisker of defeating Supervisor Bill Wilkinson in 2011. Although Mr. Wilkinson, town budget officer Len Bernard, and Nawrocki Smith LLP, the town’s auditors, have often clashed with Mr. Cohen over his questioning of town finances, this time everybody is playing nice.

Mr. Bernard said this week that Dave Tellier, a partner with Nawrocki Smith, will meet with town officials on Friday to review Mr. Cohen’s concerns and begin to make the necessary corrections.

The biggest error involves some $6 million in expenses for the playhouse that were included in bonds issued in 2005 and 2006, according to Mr. Cohen. Those bonds should have been paid for out of the whole-town fund, which covers projects that theoretically benefit all town residents. Instead, they have been paid out of the part-town budget, which covers expenses that do not benefit residents of the incorporated villages.

Mr. Cohen said that if the playhouse error is not corrected, going back to when the bonds were first issued in 2005 and extending forward until they are all paid off in 2026, residents outside the villages will end up paying more than $2 million in principal and interest that rightfully should be paid for by village residents.

To date, according to Mr. Cohen, residents outside the villages have improperly paid an estimated $750,000 in taxes for projects that benefited everyone in town.

The good news, according to Mr. Bernard, is that correcting the errors will have a negligible impact on tax rates. It will mean, though, that the town will have to shift surplus from its whole-town fund to the part-town fund to account for the mistake. That would leave the town with about $8 million in surplus in the whole-town fund and $3.5 million in the part-town fund, up from about $1.5 million, which Mr. Bernard said would be a healthier position anyway.

He said Mr. Cohen’s findings were aftershocks from the administration of former Supervisor Bill McGintee, which amassed nearly $30 million in unaccounted-for deficits by the time he left office.

In attempting to unravel the finances, the town and its representatives, as well as officials from the state comptroller’s office, went over hundreds of bonded items and agreed in February 2011 that it appeared that all bond payments were properly assigned, based on the findings of Nawrocki Smith, Mr. Bernard said.

But, he said, minor problems were still to be expected. “When things pop up, you deal with it, and things will be popping up for years.”

Mr. Bernard said it was likely a simple mistake — an assumption that village residents would not use the facility — that led to the playhouse bonds being assigned to the part-town fund. “But the playhouse can be used by anybody, like the beaches,” he said. “Whether you live in the village or not, you can use the town beaches.”

Mr. Cohen, a self-described financial wonk, said he first uncovered the errors in 2011 when he was running for supervisor and planned to correct them if elected. He said he revisited the issue this year and chose to bring it to the town board after the election so it would not become a campaign issue.

He said he hoped the town would be able to correct the errors before it officially adopts its 2014 budget on Tuesday, but if not it could still make the correction in the form of internal transfers after the new year.